Thursday, May 27, 2010

Tom: How are you, Guru Harry?Guru: I’m very well, Tom. Tom: I thought the doctor said that you only have a few more days to live.Guru: Yes, that’s true. But that only means I’ll leave my body in a few days time.Tom: You mean you’re not worried about dying?Guru: Well, dying means the soul is separated from the body but the soul will continue to live while the body is left behind. You know we are souls and not bodies, so why should I worry?Tommy Wong's book can be purchased here.

Wednesday, May 26, 2010

Dear Mr. TanI work in an industrial estate complex belonging to a listed industrial REIT in Ang Mo Kio Ave 10. Since late last year, a unit next to the ground floor lift lobby have been discharging a foul smelling air. This pervades the lift lobby and on cold days, drifts up to even the third and fourth floor. The smell of this discharging is nauseating although the discharge is intermittent and the intensity varies from time to time.

I was wondering if the gas is toxic or carcinogenic. So I sent a mail to NEA and also notified the management of the building. After much tai-chi and wayang, the situation did not change significantly and I think no real measurements and test of the air was done after a full 6 months.

What can we do to these people especially the NEA? Are they not supposed to act like civil servants looking after the people's health and interest? Must we wait until someone dies or get cancer before something happens?

I invite readers to send their article to me at kinlian@gmail.com for posting in my blog. If you do not wish to disclose your name, I can use your initials. I have posted the views of TY who sent it to me by e-mail.

The survey done by SNEF/MOM/NTUC is merely a red herring and a public relation exercise by the govt. Which employer in their right mind would tell the surveyors that they automatically cut the wages of workers who are 60 or older?? Do SNEF/MOM/NTUC verify or audit what the employers tell them? Of course not. This survey only tells us the percentage of employers who are stupid enough to admit that they automatically reduce the wages of older workers! The best part is, our govt is leading the charge with depressing our wages by reducing the employer CPF contribution rate for older workers.

Notice that shortly after the survey results were published, Capt James, who heads the pilots union at SIA, recently criticised SIA for discriminating against S'porean pilots (who face pay cuts and/or placed on pay-if-you-fly contract when they get older) in favour of expat pilots who are provided with a generous package. I am not disputing that pilots are paid well and most can retire comfortably, but the pertinent point is the fact that S'poreans are being discriminated against in our own country!

I can empathise with the your friend's plight. He must have felt betrayed by his employer. The govt claims that S'pore is a meritocratic nation and so by natural extension, employers will find the best talent for the job without any discrimination. Frankly, that is just wishful thinking on the part of out govt. It is extremely naïve to believe that personal relations don't play a part in employment. Say a company hires a Filipino manager.....he will try his best to hire his countrymen since they share the same cultural background and mother tongue. This is not meritocracy. This is pure stupidity of our national policies.

Like you said, how can S'poreans have more babies when our livelihood is in danger? I guess that the a key downside to paying our ministers and senior civil servants outrageous salaries......they begin to live in their own world.

Jobs are no long secure in Singapore due to the following reasons:
a) global competition
b) outsourcing of jobs in public sector
c) easy entry of foreign workers
d) pro-business environment
e) weak protection of workers and managers

I cite the case of a friend who lost a job after 11 years due to a change of management, as the new management wish to bring in his buddies. The friend had a good testimonial from the previous management. He was given only 3 months of salary as a severence package. He has a family and an elderly mother to support.

In an environment where jobs are not secure, it is important to avoid making financial commitment, such as:
a. buying an expensive home on mortgage
b. raising a family.

Perhaps, it is not necessary for me to raise these points, as many Singpoareans are aware about the sitaution and have decided not to get married or to have children. This is probably the reason why Singapore has perhaps the lowest birth rate among all countries in the world. This is due to the lack of employment security and the high cost of living in Singapore.

It is important for each person to have a large emergency fund, comprising of personal savings of up to six months of earnings. This fund may have to be drawn down in an emergency. It should be kept in liquid form, and not invested in a inflexible investment, such as a life assurance policy. Read my tips in my book, Practical Guide on Financial Plannng.

For older people who are already committed to a expensive mortgage and a family, it is time to stop further commitments and to build up the emergency fund early. Search Youtube for the videos by Suze Osman, who is a presenter in CNBC programme. She has been giving the same advice for the past two years, i.e. build an emergency fund.

The government leaders have been telling the people that a minimum wage will cause the jobs to be lost. This is only partly true; largely, it is false.

A minimum wage is necessary to ensure that the worker earns enough to pay for the cost of living by doing a full day's work. If the wage is below the minimum, the worker has to work longer hours. This will cause other people to be unemployed. For a stable society, we need to have most people, who are able and willing to work, to be able to find a job and earn enough enough to raise a family and be a contributing member of society.

A decent wage, as opposed to a sub-minimum wage, does not cause the loss of jobs. Wages are only one component of the total cost of production. The other components are cost of property (i.e. rental), government taxes and shareholder profits. If wages are too low, more of the cost goes towards rental and profits. The imbalance, between wages and rental, is one factor leading to the high property prices in Singapore.

Many of the jobs in a country are in the service sector. They are part of the domestic economy. They have to be done in the country and cannot be lost. Examples are education, health, transport and personal services. A minimum wage to these sectors affect all businesse and will be added to the cost of providing the service. It can be kept low, if the other components, such as rental, taxes and profits, are kept at the fair market levels - and are not inflated due to the failure of the market, e.g. if there is a near monopoly.

Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who work in Singapore. The social cost of these foreign workers have not been properly factored - i.e. the overcrowding and the strain on the public services (i.e education, health and transport). If these are properly accounted, the strategy of low wages, i.e. no minimum wage, in creating jobs in Singapore is not compelling.

I believe that it is time for a minimum wage to be introduced in Singapore and for the market in labour to find its new level. I believe that we are among the few developed economies that do not have a minimum wage.

Monday, May 24, 2010

This letter appears in the Online Forum of the Straits Times on 24 May 2010.

I refer to the letter entitled “Less than 3% of private firms cut older worker’s wages” (ST 20 May) sent in jointly by the Singapore National Employer’s Federation, Ministry of Manpower and the National Trades Union Congress.

Employers in Singapore have the flexibility to terminate an older worker for a variety of reasons, including restructuring and outsourcing. This has been practiced quite often in the private and public sectors. There is little need for them to keep workers until age 60 to have their wages reduced under the Retirement Age Act. This probably account for the low percentage of employers exercising this wage cut.

I cite the case of a friend who has worked for 11 years in regional business development for a local insurance company. He was rated as a good performer by the previous management. Recently, with a change of top management, he was asked to leave and was offered a compensation of only 3 months of salary.

He asked for my assistance on how to make an appeal to the Ministry of Manpower, as he still has a family and an sick elderly mother to support.

I hope that our tripartite partners will recognise this type of difficulty faced by many Singaporeans. The current employment practices offer little protection to workers, especially those at the older wages, when the top management outsource the work to contractors to reduce their cost or replace senior people with their own buddies.

It is time for Singapore to consider a minimum wage so that the wages of our worker do not continue to stagnate due to outsourcing to contractors who can employ foreign workers at lower cost. There is also a need to set a certain level of retrenchment benefit for all workers, including managers, to protect them against being replaced for reasons that are not related to bad performance.

My comment
A ponzi scheme usually offer an attractive return. The operator take the money from the investors to pay back the earlier investors. As long as the ponzi scheme continues to grow exponentially in size, the operator is able to carry on. During this time, the operator continues to siphon off the money. When the new money stops coming in, the ponzi collapses.

Mr TanCurrently for school buses insurance had gone up significantly and beside this NTUC are now selecting their customers i.e those with accident (be it only 1) during the year NTUC at the moment decide not to cover the policy instead of qouting a price. ( as being part Government shouldnt NTUC be helping instead of pushing them away and just drop them?)

Currently in the market we only have NTUC, AXA and Liberty for school buses insurance coverage. However, with NTUC choosing their customer the other two companies will increase their price higher and this vicious circle will cause a huge problem as drivers cannot afford it and their "rice bowl" will be a big issue as most of them have only lower primary level and without insurance there will be no road tax and no where to turn to for help.

Please Mr Tan, I would really like to help the drivers but could you point me to the right direction and what to do? On behalf of the drivers - We thank you for your advise and appreciate any help you are able to offer.

REPLY
I suggest that you write a letter to the newspapers (straits times or zhao bao) to highlight your dilemma. I hope that the public attention will get the authority (i.e. MAS or LTA) to find a solution.

First of all, I'll like to thank you for some of the sound advice that you have posted on your blog. I'm an avid reader of your blog and also someone who had bought and like your financial planning book. I am currently staying in a 3 room HDB flat and planning to upgrade to a 5 room HDB this year. I have some questions that I would love to hear from your advice

1. Mortgage - floating vs fixed. What is your take on this given the current situation?

Reply: I think that the mortgages in Singapore are all on floating rates. I am not aware of any bank that offers fixed rate morgage. If you have found one ,give me the terms for analysis

2. Mortgage - lock period, is a short or long period better?\

Reply: same comment as for 1.

3. We are not sure if we should repay our loan as fast as possible (i.e. using our entire monthly cpf contribution for repayment) or if we should stretch our loan tenure for a longer period for reasons such as to use our CPF for any investments (e.g. NTUC growth, etc) with the hope of getting returns higher than our mortgage rate or to build a buffer in ordinary account for repayment in case anyone or both of us goes jobless, so that we do not need to fork out cash.

Reply: You should keep 6 months of repayment as a buffer in the CPF. If you have cash flow problem, you can pay from this buffer.

4. Is it better for us to deduct everything we have in our CPF for housing purchase or should we transfer some if not all of our CPF for investments such as NTUC growth, etc with the hope of getting returns higher than our mortgage rate?

Reply: Do not invest in a new Growth policy, as it is rigid and does not offer an attractive yield.

5. Me and my wife's used a sum of our CPF to purchase NTUC growth prior to buying our 3 room HDB. Now that we are planning to buy a 5 room HDB, should we terminate our NTUC growth plans and use that amount to pay for the HDB? We have sufficient CPF to pay for the 15% downpayment, but I'm thinking of paying more and borrowing less from the bank. Would you know for early termination, would I at least have my sum invested back? Is what I'm thinking of doing advisable?

Reply: You can a poor deal with you terminate the Growth policy. It is usually better to keep it to maturity, rather than terminate it early. You should ask them to quote you the cash value now, and the projected cash value on maturity to make a proper decision.

Read this article. These investments are not safe and do not offer an attractive yield.

My comment
My wife and daughter were sold several of these products during the past decade. They were told that they are "safe" and have the potential to earn a good return, if ........... In all cases, they just got back their capital after waiting for five years and lose the interest that could have been earned.

The Greek cisis is a bad sign for the global economy. Many countries have large budget deficit and depend on borrowings to finance the deficit. Lenders are now worried that these countries cannot repay their debt.

The crisis is now affecting Europe. It is likely to spread to other countries. The countries that have large budget deficits that depend on borrowings include the USA, UK and Japan. Investors may lose confidence in these countries and lead to another crisis.

Look at what happened to Dubai and now Greece. It is a matter of time before the loss of confidence spread to other countries.

The global economy is fragile. It is bad to depend on private money to fund government deficits. A lot of the private money are in hedge funds. I consider these hedge funds to be financial terrorists. They can bring down a currency or a country, so as to make a large profit from the destruction. I think that hedge funds should be banned.

20 people responded to the contest to find a "out of the box" solution shown here. Most of the suggestions are:
a) ask X to remarry
b) buy a single's flat
X is not prepared to remarry just to keep the flat. He finds it costly to sell his flat and buy a new flat under the single's scheme.

I wish to award my prize (Tangram book) to the person who submitted this suggestion:Quote1. Mr. X appears to be occupying the existing flat under Public Scheme with a CPF Housing Grant for Family which is $30,000. HDB will consider the case of married child moving out based on the case. See http://www.hdb.gov.sg/fi10/fi10326p.nsf/w/ChgOwnerMarriedChildMoving?OpenDocument2. If (1) above does not work, appeal to HDB to change the scheme type to Single Singapore Citizen Scheme with CPF Housing Grant of $11,000. See http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyResaleFlatSingleScheme?OpenDocument and be willing to return (30000-11000)=$19,000 back to HDB. 3. If (1) and (2) does not work, the simplest solution is to move to the daughter's new flat. There will be lack of privacy and independence but guarantees to provide a roof for Mr. X without hassle.Unquote

What can the HDB CEO do to help X? He could consider the appeal and do not take any decision for a long time. X can continue to live in the HDB flat while the appeal is being considered.

Case Study
X is the person in charge of convening a meeting of owners of a condominium that wishes to appoint a sales committee for an enbloc sales. The law requires 30% of the owners to be present for the meeting to start at the "appointed time". At the time of the meeting, the quorum of the meeting was not met. However, some owners appeared with the next 15 minutes and the quorum was met. The law did not state whether the meeting cound be extended beyond the appointed time, but also did not state that any extension was disallowed. Should X allowed the meeting to start later, when the quorum was met? Give your views in this survey